United States

Tracker, Financial Services Regulation & Compliance - Insurance

EU & INTERNATIONAL

FSB information on compensation practices workshop

On 3 August 2015, the Financial Stability Board (FSB) published information on a workshop held jointly with the International Association of Insurance Supervisors (IAIS) in May this year regarding compensation practices in the insurance sector. Key issues discussed at the workshop included (a) the relationship between compensation and risk taking/culture and (b) governance surrounding compensation. While insurance sector participants indicated that the FSB's Principles and Standards for Sound Compensation Practices are geared toward the banking sector, it was acknowledged that risk aligned compensation is not unusual and is an important feature in the insurance sector.

PRA confirms position on deferred tax for Solvency II

On 30 July 2015, the Prudential Regulation Authority (PRA) in the UK announced that its approach in relation to deferred tax will remain the same as set out in supervisory statement SS2/14 (the most recent version of which was published in February 2015). In short, this means that deferred tax assets may be recognised in the Solvency II balance sheet, subject to certain conditions.

PRA publications regarding Solvency II reporting issues

On 10 August 2015, the Bank of England and the Prudential Regulation Authority (PRA) launched a consultation (CP25/15) on a draft supervisory statement on compliance with the Implementing Technical Standards (ITS) for both supervisory reporting and public disclosures. This confirms the PRA's intended approach (and expectations of firms) in areas such as reporting currency, exchange rates and reporting of external credit ratings. Comments are invited until 21 September 2015. On 17 August 2015, the PRA published final supervisory statements (SS36/15 and SS37/15) in relation to Solvency II reporting codes. Amongst other matters, life assurers must submit information using a defined list of life product reporting codes. Lists of internal model reporting codes and components have also been published (and these must be built into firms' internal models).

PRA focuses on intra-group reinsurance under Solvency II

On 14 August 2015, the PRA published a statement on its Solvency II News webpage regarding intra-group reinsurance under Solvency II. This confirms the PRA's view that Solvency II requires that both entities' balance sheets are to be valued independently in such cases. Additionally, the PRA commented that (a) the ceding entity should not take credit for any matching adjustment available to the reinsurer and (b) in the context of group solvency calculations, any matching adjustment benefit received by the cedant on its retained risks would be preserved. However, the PRA also indicates that certain adjustment could be made to reflect the value of the reinsurer's matching adjustment benefits (which would otherwise be lost).

Developments regarding EIOPA's infrastructure investment risk advice

On 7 August 2015, Insurance Europe published its views on the European Insurance and Occupational Pensions Authority's (EIOPA) recent draft advice to the European Commission regarding identification and calibration of infrastructure investment risk categories. Notably, Insurance Europe suggests that the draft advice does not remove unnecessary barriers to investment. Specific issues raised include (a) the narrow nature of the proposed definition of 'infrastructure', and (b) that the capital charges exaggerate the risk posed by such investment making it uneconomical. Insurance Europe's response (and other responses) were published online by EIOPA on 18 August 2015. EIOPA is expected to submit its final advice to the Commission by the end of September 2015.

Solvency II taxonomy and data point model updates from EIOPA

On dates between 31 July 2015 and 24 August 2015 (inclusive), EIOPA published updated information on its standard data point model and XBRL taxonomy (to be used for the purpose of Solvency II reporting). Firms are advised to use the updated version to prepare IT systems for Solvency II. EIOPA also provides revised timelines for reporting and details on the validations with which all data submissions should comply with. On 7 August 2015, EIOPA also published its monthly technical information on the symmetric adjustment of the equity capital charge for Solvency II.

FCA action regarding business plan 2014/15 press briefing

The Financial Conduct Authority (FCA) in the UK recently published the minutes of its June Board meeting. This reflects its discussions on a proposed response to a Treasury Select Committee (TSC) report, which had criticised a FCA press briefing regarding launch of a thematic review on fair treatment of long-standing customers in the life insurance sector. The minutes record that the Board of the FCA (a) agreed to external review of the Board every two years, (b) requested that the description of 'information classification system' in the FCA staff handbook be clarified, (c) agreed that the 'core principles of responsibilities' maps should apply to FCA senior managers and that it will publish the maps that should apply to FCA senior managers.

Insurance Levy 2015/16 Fact Sheet from the FRC

The Financial Reporting Council (FRC) in the UK recently published an Insurance Levy 2015/16 Fact Sheet. This explains the legislative basis of the current insurance levy collected by the FRC for the purpose of funding its responsibilities for actuarial standards and oversight. Noting that FRC costs are currently funded through non-statutory arrangements, the FRC confirms that it would seek to invoke existing statutory powers to impose mandatory levies, if needed.

PRA and FCA updates for (re)insurers not captured by Solvency II

On 13 August 2015, the PRA published a consultation paper (CP27/15) on the prudential regime to apply to (re)insurers which are not subject to Solvency II. The PRA indicates that its proposals do not constitute a substantive change for such firms (except for enhanced governance requirements proposed for firms with assets in excess of £25 million in respect of regulated activities). On 13 August 2015, the PRA and FCA also published consultation papers (PRA CP 26/15 and FCA CP15/25, respectively) on the Senior Insurance Managers Regime (SIMR) for (re)insurers meeting this threshold. This is intended to be similar to the regime which applies to Solvency II firms. Comments are invited until 12 October 2015 to all consultations mentioned. Final rules (PS21/15) have also been published relating to the SIMR for (re)insurers not within the scope of Solvency II but which have assets of less than £25 million.

PRA issues cyber-resilience questionnaire

On 12 August 2015, the PRA issued a cyber-resilience questionnaire to insurers. This process aims to assist the PRA to understand firms' policies and capabilities in areas such as (a) cyber security and resilience capabilities, (b) cyber insurance and (c) conduct (relating to confidential consumer information). Completed questionnaires must be returned to the PRA by 16 October 2015.

EIOPA updates draft ITS

On 11 August 2015, EIOPA published updated draft Implementing Technical Standards (ITS) (the original drafts of which were published in July 2015) in respect of (a) establishing the templates for the submission of information to the supervisory authorities referred to in the Solvency II Directive and (b) the procedures, formats and templates of the solvency and financial condition report. These are available on EIOPA's website.

PRA statement on UK GAAP & Solvency II

On 28 August 2015, the PRA published a supervisory statement (SS38/15) on the consistency of UK generally accepted accounting principles (GAAP) with Solvency II. The PRA reminds firms that Solvency II permits them to recognise and value assets and liabilities under UK GAAP if certain conditions are adhered to. Firms wishing to avail of this flexibility must provide evidence to the PRA in advance of doing so. To assist firms, the PRA has listed the UK GAAP treatments which, in its view, are compatible with Article 75 of Solvency II (i.e. one of the conditions mentioned above).

PRA consultation paper on third country (re)insurance branches

On 28 August 2015, the PRA published its consultation paper (CP31/15) on UK branches of non-EEA (re)insurers under Solvency II. This paper consults on revisions to a paper published in March 2015 on Third Country Branches (SS10/15). Key revisions include (a) an expectation for such branches to comply with the relevant EIOPA Branch Guidelines and (b) details as to how the PRA expects such branches to report to the PRA.

Insurance Europe comments on IAIS conduct of business risk paper

On 13 August 2015, Insurance Europe published its comments on the IAIS' Paper on Conduct of Business Risk. Whilst acknowledging that the risks identified by the IAIS is comprehensive, Insurance Europe stated (amongst other matters) that the paper gives little consideration to the measures that supervisors/insurers/intermediaries already apply to mitigate such risks.

FOS complaints data – fall in PPI cases in the UK

On 25 August 2015, the Financial Ombudsman Service (FOS) in the UK released its latest set of bi-annual complaints data relating to banks, insurance firms and other financial businesses. Notably, for the insurance sector, although 55% of new cases related to payment protection insurance complaints, this marked a 10% decrease when compared to the previous six month period.

Board of Appeal of the ESAs dismisses Romanian insurer appeal

On 3 August 2015, the European Supervisory Authorities (ESAs) dismissed an appeal by a Romanian insurer against a decision by EIOPA in respect of a challenge by that insurer to the Italian insurance regulator. The Board of Appeal unanimously concluded that the appeal was inadmissible. Notably, the Board held that a letter addressed to the insurer by EIOPA could not be deemed to be a 'decision' for the purpose of the relevant appeal rules. This is because it was simply a re-confirmation of a prior decision taken by EIOPA (which had not itself been contested in time by the insurer under relevant appeal rules). Therefore, the Board had no jurisdiction to admit any appeal against it.

On 24 August 2015, Insurance Europe published the results of its survey regarding the implementation of Solvency II. While this found that significant progress has been made, it also revealed that many insurers are concerned about pressures arising from last minute requirements imposed in the lead-up to the Solvency II implementation date. Key concerns include (a) late adoption of Quantitative Reporting Templates by the European Commission and (b) additional implementation burdens faced by insurers as a result of national supervisors' individual requirements.

Insurance Europe responds to HLA consultation

On 25 August 2015, Insurance Europe published its response to the IAIS consultation on higher loss absorbency (HLA) requirements for globally systematically important insurers (G-SIIs). Suggested improvements made by Insurance Europe to address concerns in this regard include (a) the need to focus on activities that give rise to systemic risk, (b) changes to the proposed calibration target so that it is relative to the level of systemically risky activities undertaken, (c) non-application of HLA to activities in other regulated areas (unless the activities would separately qualify for HLA under that sector's systemic regulation) and (d) review of the scoring methodology to properly reflect the systemic riskiness of an insurance entity.

On 13 August 2015, the PRA and FCA in the UK jointly published a policy statement (PS15/21) on the Approved Persons Regime (APR) for (re)insurers subject to Solvency II. This sets out the final rules for the reformed accountability framework for individuals working in such firms. It provides a timetable for firms regarding the implementation of the new APR and also discusses arrangements for the grandfathering of individuals currently approved under the existing regime.

Discussion paper on PRIIPs – Insurance Europe responses

On 18 August 2015, Insurance Europe and Finance Watch published their responses to the ESA discussion paper on packaged retail and insurance-based investments products (PRIIPs). Amongst other matters, Insurance Europe outlined its concern with respect to including the biometric risk premium in the cost section of the key information document. It also suggests using reduction in yield as a cost indicator (which it considers more suitable than the total cost ratio).

Insurance Europe response to consultation of the review of EMIR

On 17 August 2015, Insurance Europe published a response to the European Commission consultation on review of the European Market Infrastructure Regulation (EMIR). Notably, in its response, Insurance Europe suggested possible solutions to the insufficient possibilities for long-term investors (such as insurers) to transfer non-cash collateral with central counterparties (CCPs). These include (a) a permanent exemption from the central clearing obligation for insurance companies that use derivatives for hedging and (b) encouragement for CCPs to develop tailored solutions for insurance companies (allowing for non-cash collateral as variation margin). Insurance Europe also noted that it should be clarified that the EMIR does not apply to insurance products.

Results of Romania Balance Sheet Review/Stress Test published

On 15 July 2015, the Romanian Financial Supervision Authority, the European Commission and EIOPA jointly published the results of an assessment of the Romanian insurance sector. Importantly, this identified (pursuant to a Balance Sheet Review and Stress Test) that the Romanian insurance sector was not adequately capitalised. Certain (re)insurers perceived to be the main contributors to the shortfall have been requested to prepare and submit action plans setting out the measures they would take to become Solvency II compliant.

IAIS publish August 2015 newsletter

The IAIS recently published its August 2015 newsletter. Key points highlighted include that the Field Testing Working Group/Capital Development Working Group held meetings in Basel in July 2015 to discuss Higher Loss Absorbency and the Governance Working Group held meetings in Ljubljana on 27 and 28 August 2015 to discuss feedback from the recent consultations regarding Insurance Core Principles. It was also noted the IAIS recently held an Access to Insurance Initiative to share experiences between international insurance supervising authorities regarding the challenges of implementing risk-based supervisory frameworks.